TVS Motor Company Ltd stock rose 9.7% after its Q3FY25 results, as margin hit record high of 11.9% in the quarter, mainly driven by lower commodity prices. Profitability is set to improve further as TVS expects to receive benefits from the government’s production-linked incentive (PLI) scheme from Q4FY25 onwards, which has led to earnings-per-share upgrades by some brokerages.
Volume improved 10% year-on-year to 1.21 million units but was flat sequentially. In the first nine months of FY25 (9MFY25) the two-wheeler retail market grew around 9%, led by rural India. The domestic two-wheeler industry is projected to see single-digit growth in FY25, but TVS expects to outperform with new products such as the well-received Jupiter 110cc.
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However, its loss of market share in motorcycles is discomforting. “For the first time in many years, TVS has underperformed the industry in FY25YTD. More importantly, TVS has underperformed in the 125cc segment, which has been its key growth driver in recent years,” said a Motilal Oswal Financial Services report dated 28 January. TVS’s market share in the domestic scooters segment improved 50 basis points (bps) year-on-year to 20.1% in 9MFY25, while its share of the domestic motorcycle market fell from 10.5% to 9.9% over the same period.
EV business could be a drag
TVS’s fortunes are also tied to the progress it makes on electric vehicles (EVs). Its market share in the EV scooter segment rose to 22.4% in Q3FY25 from 19.3% in Q2FY25, but with competition heating up and subsidies fading, margin pressure is set to rise. A subdued EV business could be a drag on overall earnings performance.
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Exports are likely to see a gradual revival at best. In Q3FY25, exports grew 18% year-on-year but fell 5% sequentially as a sharp drop in three-wheeler and scooter exports offset a solid 35% year-on-year increase in motorcycle exports. Africa, a key market, showed some signs of recovery in Q3, but Bangladesh remained weak.
Capital allocation issues
Rising losses from subsidiaries (excluding TVS Credit) have also sparked capital allocation issues. Much of these losses stem from its e-bicycle businesses, which are struggling due to the slowdown in the European market and heavy discounting. In FY26, TVS plans to invest about ₹1,700 crore in subsidiaries.
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TVS stock is up around 15% so far in FY25, outpacing the Nifty Auto index, but it’s trading at an expensive 39 times estimated FY26 earnings, Bloomberg data showed. This premium valuation does not factor in capital allocation issues, cautioned IIFL Securities Ltd. “Norton is in the product development stage (six new product launches planned) and will need continued investments. Weakness in the European e-bike market will entail continuous cash calls from Swiss e-Mobility to fund losses,” it said in a report dated 29 January.
